VOL.

302, JANUARY 28, 1999 241

Philippine Bank of Communications vs. Commissioner of Internal Revenue

G.R. No. 112024. January 28, 1999.*

PHILIPPINE BANK OF
COMMUNICATIONS, petitioner, vs.
COMMISSIONER OF INTERNAL
REVENUE, COURT OF TAX APPEALS and
COURT OF APPEALS, respondents.
Taxation; Due Process; Due process of law under the Constitution does not require judicial
proceedings in tax casesit is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little as possible. Basic is
the principle that taxes are the lifeblood of the nation. The primary purpose is to generate
funds for the State to finance the needs of the citizenry and to advance the common weal. Due
process of law under the Constitution does not require judicial proceedings in tax cases. This
must necessarily be so because it is upon taxation that the government chiefly relies to obtain the
means to carry on its operations and it is of utmost importance that the modes adopted to enforce
the collection of taxes levied should be summary and interfered with as little as possible.

Same; Tax Refunds; Prescription.Claims for refund or tax credit should be exercised within
the time fixed by law because the BIR being an administrative body enforced to collect taxes, its
functions should not be unduly delayed or hampered by incidental matters.

Same; Same; Same; Actions; The taxpayer may file a claim for refund or credit with the
Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in
CTA is commenced.The rule states that the taxpayer may file a claim for refund or credit with
the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit
in CTA is commenced. The two-year prescriptive period provided, should be computed from the
time of filing the Adjustment Return and final payment of the tax for the year.

_________________
*
SECOND DIVISION.

242

242 SUPREME COURT REPORTS ANNOTATED

Philippine Bank of Communications vs. Commissioner of Internal Revenue
Same; Same; Same; Administrative Law; Statutory Construction; Revenue Memorandum
Circular (RMC) 7-85, changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, created a clear inconsistency with the provision of Sec.
230 of 1977 NIRC.When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess quarterly income
tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977
NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.

Same; Same; Same; Same; Same; Judicial Review; Courts will not countenance administrative
issuances overriding, instead of remaining consistent and in harmony with, the law they seek to
apply and implement.It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general interpretations of tax laws)
which are issued from time to time by the Commissioner of Internal Revenue. It is widely
accepted that the interpretation placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not
countenance administrative issuances that override, instead of remaining consistent and in
harmony with, the law they seek to apply and implement.

Same; Same; Same; Same; Estoppel; Fundamental is the rule that the State cannot be put in
estoppel by the mistakes or errors of its officials or agents.Further, fundamental is the rule that
the State cannot be put in estoppel by the mistakes or errors of its officials or agents. As pointed
out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an administrative interpretation which is not in harmony
with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his
interpretation could not be given weight for to do so would, in effect, amend the statute.

Same; Same; Same; Same; Same; Statutory Construction; A memorandum circular of a bureau
head could not operate to vest a taxpayer with a shield against judicial action, for there are no
vested rights to speak of respecting a wrong construction of the law by the

243

VOL. 302, JANUARY 28, 1999 243

Philippine Bank of Communications vs. Commissioner of Internal Revenue

administrative officials and such wrong interpretation could not place the Government in
estoppel to correct or overrule the same; The non-retroactivity of rulings by the Commissioner of
Internal Revenue is not applicable where the nullity of a Revenue Memorandum Circular was
declared by courts and not by the Commissioner of Internal Revenue.Article 8 of the Civil
Code recognizes judicial decisions, applying or interpreting statutes as part of the legal system of
the country. But administrative decisions do not enjoy that level of recognition. A memorandum-
circular of a bureau head could not operate to vest a taxpayer with a shield against judicial
action. For there are no vested rights to speak of respecting a wrong construction of the law by
the administrative officials and such wrong interpretation could not place the Government in
estoppel to correct or overrule the same. Moreover, the non-retroactivity of rulings by the
Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No.
7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue.
Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature
of a claim for exemption and should be construed in strictissimi juris against the taxpayer.

Same; Same; The corporation must signify in its annual corporate adjustment return (by
marking the option box provided in the BIR form) its intention, whether to request for a refund or
claim for an automatic tax credit for the succeeding taxable year.Sec. 69 of the 1977 NIRC,
(now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over
the actual income tax computed in the adjustment or final corporate income tax return, shall
either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly
income tax liabilities for the quarters of the succeeding taxable year. The corporation must
signify in its annual corporate adjustment return (by marking the option box provided in the BIR
form) its intention, whether to request for a refund or claim for an automatic tax credit for the
succeeding taxable year. To ease the administration of tax collection, these remedies are in the
alternative, and the choice of one precludes the other.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

244

244 SUPREME COURT REPORTS ANNOTATED

Philippine Bank of Communications vs. Commissioner of Internal Revenue

Angara, Obello, Concepcion, Regala & Cruz for petitioner.

The Solicitor General for respondents.

QUISUMBING, J.:

This petition for review assails the Resolution1 of the Court of Appeals dated September 22,
1993, affirming the Decision2 and Resolution3 of the Court of Tax Appeals which denied the
claims of the petitioner for tax refund and tax credits, and disposing as follows:

IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course.
The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20,
1993, are hereby AFFIRMED in toto.

SO ORDERED.4

The Court of Tax Appeals earlier ruled as follows:

WHEREFORE, petitioners claim for refund/tax credit of overpaid income tax for 1985 in the
amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period.
The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has
opted and in all likelihood automatically credited the same to the succeeding year. The petition
for review is dismissed for lack of merit.

SO ORDERED.5

_______________
1
Penned by Associate Justice Isaali S. Isnani and concurred in by Associate Justice Nathanael P.
De Pano, Jr. and Associate Justice Corona Ibay Somera; rollo, pp. 101-104.
2
Penned by Ernesto D. Acosta, Presiding Judge, concurred in by Associate Judge Manuel K.
Gruba and Associate Judge Ramon O. De Veyra; rollo, pp. 33-47.
3
Rollo, pp. 70-73.
4
Supra, see note 1, at p. 103.
5
Supra, see note 2, at p. 46.

245

VOL. 302, JANUARY 28, 1999 245

Philippine Bank of Communications vs. Commissioner of Internal Revenue

The facts on record show the antecedent circumstances pertinent to this case.

Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation

duly organized under Philippine laws, filed its quarterly income tax returns for the first and
second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The
taxes due were settled by applying PBComs tax credit memos and accordingly, the Bureau of
Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00
and P1,615,253.00, respectively.

Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax
Returns for the year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby
showing no income tax liability. For the succeeding year, ending December 31, 1986, the
petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for
the year.

But during these two years, PBCom earned rental income from leased properties. The lessees
withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others,
for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second
quarters of 1985.

Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by
their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.

Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner

instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA).
The petition was docketed as CTA Case No. 4309 entitled: Philippine Bank of Communications
vs. Commissioner of Internal Revenue.

246

246 SUPREME COURT REPORTS ANNOTATED

Philippine Bank of Communications vs. Commissioner of Internal Revenue

The losses petitioner incurred as per the summary of petitioners claims for refund and tax credit
for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:

1985 1986
Net Income (Loss) (P25,317,228.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50
____________ 234,077.69
*
Excess Tax Payments P 5,299,749.50 P 234,077.69
*
CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95. A forty-five centavo
difference was noted.

On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request
of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it
was filed beyond the two-year reglementary period provided for by law. The petitioners claim
for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was
automatically credited by PBCom against its tax payment in the succeeding year.

On June 22, 1993, petition filed a Motion for Reconsideration of the CTAs decision but the
same was denied due course for lack of merit.6

Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with
the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the
CTAs resolution dated July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:

1. I. Whether taxpayer PBComwhich relied in good faith on the formal assurances of BIR
in RMC No. 7-85 and did not immediately file with the CTA a petition for review asking
for the refund/tax credit of its 1985-86 excess quarterly income tax pay

_______________
6
Supra, see note 3, at 73.

247

VOL. 302, JANUARY 28, 1999 247

Philippine Bank of Communications vs. Commissioner of Internal Revenue

1. mentscan be prejudiced by the subsequent BIR rejection, applied retroactively, of its

assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of
excess quarterly income tax payments is not two years but ten (10).7
2. II. Whether the Court of Appeals seriously erred in affirming the CTA decision which
denied PBComs claim for the refund of P234,077.69 income tax overpaid in 1986 on the
mere speculation, without proof, that there were taxes due in 1987 and that PBCom
availed of tax-crediting that year.8

Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the
plea for tax refund or tax credits on the ground of prescription, despite petitioners reliance on
RMC No. 7-85, changing the prescriptive period of two years to ten years?

Petitioner argues that its claims for refund and tax credits are not yet barred by prescription
relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985.
The circular states that overpaid income taxes are not covered by the two-year prescriptive
period under the tax Code and that taxpayers may claim refund or tax credits for the excess
quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code.
The pertinent portions of the circular reads:

REVENUE MEMORANDUM CIRCULAR NO. 7-85

SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE
INCOME TAX RESULTING FROM THE FILING OF THE FINAL
ADJUSTMENT RETURN
TO: All Internal Revenue Officers and Others Concerned

Sections 85 and 86 of the National Internal Revenue Code provide:

_________________
7
Memorandum of petitioner, rollo, pp. 179-198, at p. 183.
8
Ibid., at p. 194.

248

248 SUPREME COURT REPORTS ANNOTATED

Philippine Bank of Communications vs. Commissioner of Internal Revenue

xxx xxx xxx

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77
which provide:

xxx xxx xxx

It has been observed, however, that because of the excess tax payments, corporations file claims
for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period
from the date of payment, in accordance with Sections 292 and 295 of the National Internal
Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of
the corporation to claim the refund or tax credit.

It should be noted, however, that this is not a case of erroneously or illegally paid tax under the
provisions of Sections 292 and 295 of the Tax Code.

In the above provision of the Regulations the corporation may request for the refund of the
overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate
annual income tax returns showing refundable amounts arising from overpaid quarterly income
taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976,
containing the procedure in processing said returns. Under these procedures, the returns are
merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the
return. After which, the refund or tax credit is granted, and, this procedure was adopted to
facilitate immediate action on cases like this.

In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals
in order to preserve the right to claim refund or tax credit within the two-year period. As already
stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income
tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess
income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the
date of payment considering that it is an obligation created by law (Article 1144 of the Civil
Code).9 (Emphasis supplied.)

Petitioner argues that the government is barred from asserting a position contrary to its declared
circular if it would result to injustice to taxpayers. Citing ABS-CBN Broadcast-

________________
9
Supra, see note 2, pp. 37-38.
249

VOL. 302, JANUARY 28, 1999 249

Philippine Bank of Communications vs. Commissioner of Internal Revenue

ing Corporation vs. Court of Tax Appeals10 petitioner claims that rulings or circulars
promulgated by the Commissioner of Internal Revenue have to retroactive effect if it would be
prejudicial to taxpayers. In ABS-CBN case, the Court held that the government is precluded
from adopting a position inconsistent with one previously taken where injustice would result
therefrom or where there has been a misrepresentation to the taxpayer.

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for
this rule as follows:

Sec. 246. Non-retroactivity of rulings.Any revocation, modification or reversal of any of the

rules and regulations promulgated in accordance with the preceding section or any of the rulings
or circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification, or reversal will be prejudicial to the taxpayers except in the following
cases:

1. a) where the taxpayer deliberately misstates or omits material facts from his return or in
any document required of him by the Bureau of Internal Revenue;
2. b) where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based;
3. c) where the taxpayer acted in bad faith.

Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the
two-year prescriptive period for filing tax cases in court concerning income tax payments of
Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is
generally done on April 15 following the close of the calendar year. As precedents, respondent
Commissioner cited cases which adhered to this principle, to wit: ACCRA Investments Corp. vs.
Court of Appeals, et al.,11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al.12
Respondent Commissioner

_____________
10
108 SCRA 142 (1981).
11
204 SCRA 957 (1991).
12
205 SCRA 184 (1992).

250

250 SUPREME COURT REPORTS ANNOTATED

 Philippine Bank of Communications vs. Commissioner of Internal Revenue

also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year
1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek
relief from the court. Further, respondent Commissioner stresses that when the petitioner filed
the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by
law, and such failure is fatal to petitioners cause of action.

After a careful study of the records and applicable jurisprudence on the matter, we find that,
contrary to the petitioners contention, the relaxation of revenue regulations by RMC 7-85 is not
warranted as it disregards the two-year prescriptive period set by law.

Basic is the principle that taxes are the lifeblood of the nation. The primary purpose is to
generate funds for the State to finance the needs of the citizenry and to advance the common
weal.13 Due process of law under the Constitution does not require judicial proceedings in tax
cases. This must necessarily be so because it is upon taxation that the government chiefly relies
to obtain the means to carry on its operations and it is of utmost importance that the modes
adopted to enforce the collection of taxes levied should be summary and interfered with as little
as possible.14

From the same perspective, claims for refund or tax credit should be exercised within the time
fixed by law because the BIR being an administrative body enforced to collect taxes, its
functions should not be unduly delayed or hampered by incidental matters.

Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of
1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax
erroneously or illegally collected, viz.:

______________
13
Napocor vs. Province of Albay, 186 SCRA 198 (1990), at p. 207.
14
Teodoro and de Leon, Law on Income Taxation, 1993 ed., at 485.

251

VOL. 302, JANUARY 28, 1999 251

Philippine Bank of Communications vs. Commissioner of Internal Revenue

Sec. 230. Recovery of tax erroneously or illegally collected.No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty,
or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Italics supplied)

The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of
Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is
commenced. The two-year prescriptive period provided, should be computed from the time of
filing the Adjustment Return and final payment of the tax for the year.

In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co.,15 this Court
explained the application of Sec. 230 of 1977 NIRC, as follows:

Clearly, the prescriptive period of two years should commence to run only from the time that
the refund is ascertained, which can only be determined after a final adjustment return is
accomplished. In the present case, this date is April 16, 1984, and two years from this date would
be April 16, 1986. x x x As we have earlier said in the TMX Sales case, Sections 68,16 69,17 and
7018 on Quarterly Corpo-

__________________
15
244 SCRA 446 (1995).
16
Declaration of Corporate Quarterly Income Tax (now Sec. 75, 1997 NIRC).
17
Final Adjustment Return (now Sec. 76, 1997 NIRC).
18
Place of Filing (now Sec. 77, 1997 NIRC).

252

252 SUPREME COURT REPORTS ANNOTATED

Philippine Bank of Communications vs. Commissioner of Internal Revenue

rate Income Tax Payment and Section 321 should be considered in conjunction with it.19

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the
prescriptive period of two years to ten years on claims of excess quarterly income tax payments,
such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so
doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in
the sense of more specific and less general interpretations of tax laws) which are issued from
time to time by the Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will
be ignored if judicially found to be erroneous.20 Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony with, the law they seek
to apply and implement.21

In the case of People vs. Lim,22 it was held that rules and regulations issued by administrative
officials to implement a law cannot go beyond the terms and provisions of the latter.

Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent
with but is contrary to the provisions and spirit of Act No. 4003 as amended, because whereas
the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding
five years duration, FAO No. 37-1 fixed no period, that is to say, it establishes an absolute ban
for all time. This

_______________
19
Supra, see note 15, at p. 453.
20
People vs. Hernandez, 59 Phil. 272 (1933) at p. 276; Molina vs. Rafferty, 37 Phil. 545 (1918)
at p. 555.
21
Commissioner of Internal Revenue vs. Court of Appeals, 240 SCRA 368 (1993) at p. 372.
22
108 Phil. 1091 (1960).

253

VOL. 302, JANUARY 28, 1999 253

Philippine Bank of Communications vs. Commissioner of Internal Revenue

discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the
part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the
basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go
beyond the terms and provisions of the latter. x x x In this connection, the attention of the
technical men in the offices of Department Heads who draft rules and regulation is called to the
importance and necessity of closely following the terms and provisions of the law which they
intended to implement, this to avoid any possible misunderstanding or confusion as in the
present case.23

Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors
of its officials or agents.24 As pointed out by the respondent courts, the nullification of RMC No.
7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation
which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision
of a statute. Hence, his interpretation could not be given weight for to do so would, in effect,
amend the statute.

As aptly stated by respondent Court of Appeals:

It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No.
7-85, is estopped by the principle of non-retroactivity of BIR rulings. Again We do not agree.
The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid
within 10 years from date of payment because this is an obligation created by law, was issued by
the Acting

_________________
23
Ibid., at pp. 1093-1094.
24
Republic vs. Intermediate Appellate Court, 209 SCRA 90 (1992); DBP vs. Commission on
Audit, 231 SCRA 202 (1994); Sharp International Marketing vs. CA, 201 SCRA 299 (1991);
GSIS vs. CA, 218 SCRA 233 (1990) citing Beronilla vs. GSIS, 36 SCRA 44, 55 (1970); Republic
vs. PLDT, 26 SCRA 620 (1969); Pineda vs. CFI of Tayabas, 52 Phil. 803 (1929); Benguet
Consolidated Mining Co. vs. Pineda, 98 Phil. 711 (1956); Republic vs. Philippine Rabbit Bus
Lines, Inc., 32 SCRA 211 (1970); People vs. Castaeda , Jr. 165 SCRA 327 (1988).

254

254 SUPREME COURT REPORTS ANNOTATED

Philippine Bank of Communications vs. Commissioner of Internal Revenue

Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer
should still file a claim for a refund or tax credit and the corresponding petition for review within
the two-year prescription period, and that the lengthening of the period of limitation on refund
from two to ten years would be adverse to public policy and run counter to the positive mandate
of Sec. 230, NIRC,was the ruling and judicial interpretation of the Court of Tax Appeals.
Estoppel has no application in the case at bar because it was not the Commissioner of Internal
Revenue who denied petitioners claim of refund or tax credit. Rather, it was the Court of Tax
Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85
issued by the Commissioner of Internal Revenue is an administrative interpretation which is out
of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC),
hence, cannot be given weight for to do so would in effect amend the statute.25

Article 8 of the Civil Code26 recognizes judicial decisions, applying or interpreting statutes as
part of the legal system of the country. But administrative decisions do not enjoy that level of
recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with
a shield against judicial action. For there are no vested rights to speak of respecting a wrong
construction of the law by the administrative officials and such wrong interpretation could not
place the Government in estoppel to correct or overrule the same.27 Moreover, the non-
retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case
because the nullity of RMC No. 7-85 was declared by respondent courts and not by the
Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this
Court, a claim for refund is in the nature of a claim for exemption

_________________
25
Supra, see note 1, at p. 102.
26
Sec. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part
of the legal system of the Philippines.
27
Tan Guan vs. Court of Tax Appeals, 19 SCRA 903 (1967) at p. 907; Compania General de
Tabacos de Filipinas vs. City of Manila, 8 SCRA 367 (1963) at p. 372.

255

VOL. 302, JANUARY 28, 1999 255

Philippine Bank of Communications vs. Commissioner of Internal Revenue

and should be construed in strictissimi juris against the tax-payer.28

On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming
CTAs decision denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on
mere speculation, without proof, that PBCom availed of the automatic tax credit in 1987.

Sec. 69 of the 1977 NIRC29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total
quarterly payments over the actual income tax computed in the adjustment or final corporate
income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against
the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking the option
box provided in the BIR form) its intention, whether to request for a refund or claim for an
automatic tax credit for the succeeding taxable year. To ease the administration of tax collection,
these reme-

_________________
28
Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332, Province of
Tarlac vs. Alcantara, 216 SCRA 790, Philippine Petroleum Corp. vs. Municipality of Pililla
Rizal, 198 SCRA 82, Commissioner of Internal Revenue vs. Mitsubishi Metal Corp., 181 SCRA
214.
29
Sec. 69. Final Adjustment Return.Every corporation liable to tax under Section 24 shall file
a final adjustment return covering the total net income for the preceding calendar or fiscal year.
If the sum of the quarterly tax payments made during the said taxable year is not equal to the
total tax due on the entire taxable net income of that year the corporation shall either:

1. a) Pay the excess tax still due; or

2. b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid,
the refundable amount shown on its final adjustment return may be credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.

256

256 SUPREME COURT REPORTS ANNOTATED

Philippine Bank of Communications vs. Commissioner of Internal Revenue

dies are in the alternative, and the choice of one precludes the other.

As stated by respondent Court of Appeals:

Finally, as to the claimed refund of income tax over-paid in 1986-the Court of Tax Appeals,
after examining the adjusted final corporate annual income tax return for taxable year 1986,
found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-a-
vis the fact that the 1987 annual corporate tax return was not offered by the petitioner as
evidence) by the CTA in concluding that petitioner had indeed availed of and applied the
automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the
two remedies of refund and tax credit are alternative.30

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977
NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we
must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as
evidence to controvert said fact. Thus, we are bound by the findings of fact by respondent courts,
there being no showing of gross error or abuse on their part to disturb our reliance thereon.31

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed
from is AFFIRMED, with COSTS against the petitioner.

SO ORDERED.

Bellosillo (Chairman), Puno, Mendoza and Buena, JJ., concur.

Petition denied, judgment affirmed.

_______________
30
Supra, see note 1, at p. 103.
31
Philippine Refining Company vs. Court of Appeals, 256 SCRA 667 (1996) at p. 676, citing:
The Coca-Cola Export Corporation vs. Commissioner of Internal Revenue, et al., L-23604,
March 15, 1974, 56 SCRA 5; Nasiad, et al. vs. Court of Appeals, L-29318, November 29, 1974,
61 SCRA 236.

257

VOL. 302, JANUARY 28, 1999 257

People vs. Guillermo

Notes.The two-year prescriptive period to claim refunds commences to run only from the time
the refund is ascertained, which can only be determined after a final adjustment return is
accomplished. (Commissioner of Internal Revenue vs. The Philippine American Life Insurance
Co., 244 SCRA 446 [1995])

The tax refund under R.A. 1435 must be computed on the basis of the specific tax deemed paid
under Sections 1 and 2 of RA 1435, not on the increased rates actually paid pursuant to Sections
153 and 156 of the NIRC. (Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue, 295 SCRA 721 [1998])

o0o